Guide

How simple interest works

Published August 17, 2026

Simple interest is charged or paid on the original principal only. Interest is principal times rate times years. On $1,000 at 5 percent for 3 years, interest is $150 and the total is $1,150. Each year adds the same $50.

Interest

$150.00

Total repaid or received is $1,150.00.

Principal: $1,000.00
Interest: $150.00
Total: $1,150.00

Principal

Annual rate

A decimal rate in the formula. 5 here means 0.05, not 5 percent compounded.

Time in years

Eighteen months is 1.5 years. Simple interest does not care how you slice the year.

In short

Simple interest is $I = Prt$ . On $1,000 at 5 percent for 3 years, interest is $150 and the total is $1,150.
Each year adds the same slice: $1,000 times 0.05 is $50. The rate never sees the $50 already paid.
Eighteen months is $t = 1.5$ . On $5,000 at 4 percent that is $300 of interest and a $5,300 total. Slicing the year into months does not change the product.
Over 10 years at 6 percent, $2,000 grows by $1,200 to $3,200. That is a 60 percent add-on. Compounding would have paid interest on the interest.
A savings account that quotes a yield is almost never this formula. Use it when the contract really does sit on the original principal only.

The same slice, every year

Simple interest is one product:

$I = Prt \qquad A = P(1 + rt)$

$P$ is the original principal. $r$ is the annual rate as a decimal. $t$ is time in years. $I$ is the interest. $A$ is principal plus interest.

On $1,000 at 5 percent for 3 years:

$1000 \times 0.05 \times 3 = 150$

Interest is $150. The total is $1,150. Each year adds $50, because 5 percent of $1,000 is always $50. The $50 from year one never joins the base that year two is charged on.

That is the whole distinction. Compound interest adds each period's interest to the balance, so the next period's rate sees a larger number. Simple interest does not. The simple interest calculator on this page is the product, not a compounding engine.

The simple against compound page holds the two formulas on one sheet. How compound interest works is the long form of the other formula.

Time is just time

Eighteen months is 1.5 years. There is no compounding frequency to choose, because nothing is being added to the base. On $5,000 at 4 percent:

$5000 \times 0.04 \times 1.5 = 300$

Interest is $300. The total is $5,300. Writing the term as 18 months or as 1.5 years cannot disagree unless the rate's unit disagrees too. An annual rate with time in years is the pair this page uses.

That is why a class can treat a six-month note as $t = 0.5$ and get the right dollar amount without picking monthly or daily. Frequency only starts to matter once interest is allowed to join the principal.

A longer term makes the gap visible

On $2,000 at 6 percent for 10 years, simple interest is $1,200 and the total is $3,200. Each year still adds $120, ten times, because the base never moves.

Over a single year the same 6 percent would have added $120 under either formula. That is the one place they match: one compounding period, or a contract that pays the interest out and never lets it join the balance. Past that point they separate, and the separation is what a ten-year sheet is for.

A 60 percent add-on on a $2,000 balance is the simple-interest reading of a decade at 6 percent. It is not a forecast of what a savings account will do. It is the straight line the compound curve sits above.

The straight line on this page is what the compound curve sits above. The compound interest explorer is that curve: drag the rate and the years and the gap from simple interest is the thing you are looking at.

What this page is not doing

It is not a savings-account yield, not a loan amortisation, and not the rule of 72. A quoted APY is a compounding figure. A car loan or a mortgage uses the level-payment formula, which is compound interest running in reverse.

The three sheets here are a $1,000 balance at 5 percent for 3 years, a $5,000 loan at 4 percent for 18 months, and a $2,000 balance at 6 percent for 10 years. This is educational material, not financial advice.

Worked examples

\$1,000 at 5 percent for 3 years

A balance of $1,000 earns simple interest at 5 percent a year for 3 years. What is the interest, and what is the total?

Interest is principal times rate times years: $1000 \times 0.05 \times 3 = 150$ , so $150.
Each year adds $1000 \times 0.05 = 50$ , so $50, because the rate never sees the interest already paid.
Total is principal plus interest: $1000 + 150 = 1150$ , so $1,150.

Interest is $150. The total is $1,150.

\$5,000 at 4 percent for 18 months

A loan of $5,000 charges simple interest at 4 percent a year. The term is 18 months. What is the interest?

Eighteen months is 1.5 years.
Interest: $5000 \times 0.04 \times 1.5 = 300$ , so $300.
Total: $5000 + 300 = 5300$ , so $5,300.

Interest is $300. The total is $5,300. Slicing the year into months did not change the product.

\$2,000 at 6 percent for 10 years

A $2,000 balance sits at 6 percent simple interest for 10 years. What is the interest?

Interest: $2000 \times 0.06 \times 10 = 1200$ , so $1,200.
Total: $2000 + 1200 = 3200$ , so $3,200.
That is a 60 percent add-on. Over a single year the same rate would have added $2000 \times 0.06 = 120$ , so $120, which is also what annual compounding would add in year one.

Interest is $1,200. The total is $3,200.

Common questions

Is this how a savings account works?

Almost never. A savings account that advertises a yield is compounding. Use this page when the contract really does charge or pay on the original principal only, or when a class wants the straight-line formula before compounding is introduced.

How do I enter 18 months?

As 1.5 years. Simple interest does not need a compounding frequency, so the only requirement is that the rate and the time share a unit. An annual rate with time in years is the pair this calculator is built for.

When do simple and compound interest match?

Over a single compounding period, and for as long as every period's interest is paid out and never joins the balance. Past that point they separate. On the ten-year sheet, $2,000 at 6 percent simple is $3,200. Compounding would have paid interest on the $120 already earned.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.